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Larry King Live

Suze Orman Offers Straight Talk on the Stock Market

Aired April 17, 2000 - 9:00 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

LARRY KING, HOST: Tonight, it's up, it's down, it's up again. What's happening with the stock market, and what the heck should you do? Straight talk from somebody we can all understand: Suze Orman, author of "The Courage To Be Rich." She's here for the whole hour. We'll take your calls next on LARRY KING LIVE.

Suze Orman's with us for the hour, an appropriate guest, I think, in view of recent developments. Her book "The Courage To Be Rich," for weeks No. 1 on "The New York Times" best-seller list, was declared by "Publisher's Weekly" to be the No. 6 best-selling book in non- fiction in the United States last year. The year before that, in '98, she wrote "The Nine Steps to Financial Freedom," and that book was No. 1 in non-fiction for the entire year.

Do you come from the financial analyst world?

SUZE ORMAN, AUTHOR, "THE COURAGE TO BE RICH": Actually from the world of being a financial broker, selling people like you, Larry, stocks and bonds and things like that.

KING: Working for some big company. And then on your own?

ORMAN: And then on my own. What happened is in 1987 I left, started my own firm. And then years ago I stopped doing that. And now I just go around telling people what to do and what not do with their money.

KING: You left the year of the crash?

ORMAN: Actually, no, I started in '87, my firm, by myself...

KING: Before the crash.

ORMAN: And then about three -- yes, right. It was actually May of '87. And then a few months later, it was like, oh, my god. Why would I have done that? But then about three, four years ago, when my book started to hit, I stopped seeing clients and I started to go around and just talk about money.

KING: You don't have clients anymore?

ORMAN: No.

KING: You don't have individual investors who are... ORMAN: No, not at all.

KING: Are you -- are most people who do this, well off themselves?

ORMAN: I have to tell you, I don't think so. I don't think so at all. Most...

KING: Do as I say, not as I do?

ORMAN: That's right. It's -- most financial brokers or stockbrokers probably don't have anywhere near as much money as their clients. Think about it. When I first started as a stockbroker, I had been a waitress for seven years in Berkeley, California. And -- how much money do you think I had? Nothing, absolutely nothing. But people would come to me, and I had to pretend that I knew what I was talking about and convince you what to do with your money...

KING: Did you...

ORMAN: So most brokers don't.

KING: Did you have a knack for it?

ORMAN: I did have a knack for it because I had a knack for numbers and I had a knack for what made sense. And when it comes to money, things either make sense or they don't make sense.

KING: How much of it is that, common sense?

ORMAN: I think a lot of it is common sense. You know, right now you see a lot of these people are losing money. They don't know what to do in the market. Were they having common sense when they went into the market? Did common sense say they have 10 years until they need this money, so it's OK, they can do what they need to do with it and it doesn't matter? Or was it that they ignored their common sense. They need their money one year from now, they're speculating with it, and, therefore, it causes them to do things that normally common sense wouldn't allow you to do with money.

KING: What does common sense apply when something irrational occurs, though?

ORMAN: I tell you, then you don't know what to make of it because then you have to doubt your own actions. And I have to tell you, I think that's what happened last Friday on the stock market.

KING: What did happen?

ORMAN: Well, here we had one of the most massive sell-offs, at least in recent history. And you're looking at this and you're going, what should I do? It's not supposed to be this way. The markets are supposed to be going up. The tech stocks are supposed to be good. Common sense told me tech is our future. Reality, however, was my future now is down the drain. What do I do?

KING: But everyone's saying this, who are the people selling?

ORMAN: I'm afraid that the people selling are the little investors.

KING: And why did they sell?

ORMAN: They sell because -- I'll tell you why. Chances are they were scared in 1987 when the market did crash there for a while. It took them years to want to get back in the market. They weren't going to do this. Then the Y2K scare came, and they decided I'm still not going to get back in. And they could not believe that these markets were going to go up. Finally, the year 2000 hit. Y2K is over. They're finally saying, you know what? I'm going to join the bandwagon. And they start to invest in the market.

KING: All right.

ORMAN: Very, very big difference. Those people who sold because they lost principal, they actually invested maybe this year or a few months ago, you know, at the beginning of last year. And what they invested is now down versus those people who started to buy in the markets a few years ago. Now their profits are up, and what they're losing are profits. When you lose profits, you don't tend to act irrationally. When you start to lose principal, your money, it causes you to do things that rationality probably wouldn't want to you do.

KING: Then who bought today?

ORMAN: Probably some very smart people, people who had the money to buy, who didn't have every penny they had already socked into this market. Because they were doing it intelligently. You know, Larry, there are fabulous buys out there. There are good, solid companies. And my rule of thumb has always been, if a company can't earn money for itself, I got news for you, it is not going to earn money for you either. So if you buy companies that have earnings that are solid, that have something behind them, they have a product or a technology...

KING: But they got hit, too, didn't they?

ORMAN: They got hit, but they -- truthfully, most of them came back today.

KING: Is it true that if you own something and bought it 20 years ago, you're going to make money if you stay with it?

ORMAN: Absolutely.

KING: If you bought the market, right?

ORMAN: If you bought the market. There has never been a 10-year history in time, no matter when you bought -- so let's say you bought the day before the crash in 1987. Ten years later...

KING: You're ahead.

ORMAN: You would have had more money than in any other investment out there.

KING: Then why not just buy, not follow it? Live your life, don't read it every day, don't worry, don't panic, don't sell.

ORMAN: Who ever said not to. I have to tell you, I think that's actually very fabulous advice in that you should monitor what you have to make sure that the stocks that you own, if you own individual stocks, that the management hasn't changed, that maybe they have a product that's gone bad or whatever it is. So you have to keep checking that. But a lot of people buy stocks via mutual funds, mutual funds just simply being a way that people pool their money.

KING: Like the smart person does.

ORMAN: Yes, if you buy an index fund, that buys the entire stock market. Then what you can do is you can put your money away and you don't have to look at it again for the rest of your life if you don't want to.

KING: What have day trading done to all this?

ORMAN: Day trading has made gamblers out of people that shouldn't be gamblers.

KING: These are horse players, right?

ORMAN: Totally horse players.

KING: They didn't go to Aqueduct, they went to beach (ph).

ORMAN: They went down -- and what happened to them when they were down there, they came against a broker that said, hey, little girl, little boy, you can put some of the money that you have on what we call margin. You have enough money to buy 100 shares of stock. I can show you the way ti buy 200 shares of stock. The margin in this country went from the beginning of 1999, which was at $120 billion, to almost $300 billion at the beginning of the year 2000.

KING: That was false?

ORMAN: That was false movement. We were borrowing money to push the markets up. What happens when that happens? People who borrowed money and didn't have the money elsewhere, when the markets start to drop, they get afraid and they sell, which is what caused Friday in my opinion.

KING: And '29 is when it went all the way down, right? That was heavily margined.

ORMAN: Very heavily margined, which is when we came in and redid the margin requirements. So...

KING: We're going to take a break, and when we come back we're going to deal with you. What do you do? You're an average person, right? What do you do with your dollar? With Suze Orman, who knows what to do. Hew new book, "The Courage To Be Rich," like her previous one "The Nine Steps to Financial Freedom," runaway best sellers. Lot of this program devoted to your phone calls.

Don't go away.

(COMMERCIAL BREAK)

KING: We're back with Suze Orman.

Let's say the average American, what, makes $35,000? Is that about the average payment?

ORMAN: You bet you it is.

KING: Should they even be in the stock market?

ORMAN: I have to tell you, they should be in the stock market...

KING: On $38,000?

ORMAN: ... and there's absolutely no reason not. The way they should be in the stock market is via their 401(k) plan at work or the Roth IRAs that they can start on their own. Just because you're in the stock market doesn't mean you have to have everything that you own in the stock market. There's no reason why you can't take $100 a month and put it into something every single month into something. Little amounts make huge amounts.

KING: If there is no inflation, why wouldn't everybody just buy Treasury? The United States government has never not failed, has never not paid a bond. So if their inflation is 3 percent and the bonds pay 5 percent, you're guaranteed a win.

ORMAN: I have to tell you, there are many people I know who have done absolutely nothing but buy Treasuries and they haven't gone broke. They have enough money...

KING: You can't go broke, right?

ORMAN: You can't go broke, but the theory being that if you only buy fixed-income investments that you're not going to have enough money when you get older. And then the financial advisers do these calculations for you and they show you that if you live your life span, which is to about 85 or 90 years of age, over time you're out of money at 70. So you get afraid, therefore, you invest in the market. And when you invest in the market, guess who you make money for as well? The financial advisers that gave you that advice.

However, that aside, truthfully, I don't have a problem with people if they're afraid or if they don't know what to do putting substantial money into Treasuries.

KING: Because your gut should appeal to you, right?

ORMAN: Absolutely.

KING: In other words, if you're afraid, don't take risks. ORMAN: Never talk yourself into trusting anybody. I rather you do nothing than do something you don't understand. It's your money. What happens to it directly affects the quality of your life -- not my life, not your financial adviser's life, not your broker's life but your life. If your afraid, stay safe.

KING: All right, you have a very good economy now, right?

ORMAN: Fabulous economy. Best that we've had in forever, almost.

KING: Our forecast that that continues?

ORMAN: That's right.

KING: You don't see anything on the horizon that says that's going to collapse?

ORMAN: No, I mean, it's obvious that if Mr. Greenspan continues to push interest rates up possibly too high, we could always collapse that. But I don't think he's going to do that. I think he actually is in quite good control of what's out there.

KING: Is real estate still good to have?

ORMAN: I have to tell you, I think what we have seen right now is the top of the real estate market. I think...

KING: It ain't going to get better.

ORMAN: I don't...

KING: Buy now?

ORMAN: Well, you either buy now, or truthfully if you're going to sell at the top, in my opinion, now would be the top. Why? We've seen interest rates go from 6 to -- 6 1/2 to about 8 percent on mortgages. Now you see these people whose wealth has dramatically decreased just this last week alone. And even though I know we went up today, last Friday took a big chunk out of people's net worth on paper. They're not going to overspend on real estate anymore, and I think they're going to pull back. Fear has settled in, and I think we're going to feel that in real estate.

KING: Is there a safe place in the storm other than Treasuries?

ORMAN: Sure. It depends what you consider safe, however. Obviously, if you want tax-free income there are municipal bonds. Right now, a five-year certificate of deposit in some places are paying almost 7 1/2 percent. Think about that.

KING: And they don't pay tax until you cash them, right?

ORMAN: No, on certificates of deposit you pay tax every six months as the interest -- whether you take the interest or not, you pay interest on it. KING: Municipal bonds, simply put, you are investing in the state of Virginia.

ORMAN: Or a municipality of where you live.

KING: They're building a bridge, you're helping them build that bridge.

ORMAN: You're helping them. That would be a revenue municipal bond. And...

KING: Now they lose money sometimes, don't they?

ORMAN: Sometimes, however...

KING: Orange County?

ORMAN: ... you would like to buy a bond that has insurance on it. There are three different types of insurances. The main one is MBIA, Municipal Bond Insurance Corporation, or the AMBAC. And if you buy a bond that has insurance on it, maybe you'll get a little less bit less in interest rate but you have the insurance. You're going to get your money back.

KING: Any plus in day trading at all?

ORMAN: Not that I can see. I have...

KING: You would not be a day trader, period?

ORMAN: No, I wouldn't be a day trader. I think they're...

KING: What's the biggest...

ORMAN: ... total gamblers.

KING: What's the biggest mistake most average investors make?

ORMAN: They buy at the wrong time and they sell at the wrong time.

KING: Bernard Barouks (ph) said the answer is simple: Buy small, sell high.

ORMAN: That's right. I always say, buy high and sell higher. It's like -- I mean...

KING: But what is the simplest?

ORMAN: Truthfully, what happens to most people is that they get afraid. Like right now, I think a lot of people are going to make a mistake thinking they're going to stop investing in the stock market because they don't know what's happening and the market has gone down some. If you are invested in the market, you shouldn't need your money for at least five or 10 years or truthfully you shouldn't be in the stock market at all. You would be far better off being in your Treasuries or somewhere else.

KING: So, therefore, you should be fairly well off.

ORMAN: Yes, but if you're in for five or 10 years, why do you want the market to go up? You don't want the market to go up right now. You want the market to go down, because if the market goes down, the shares of the stocks or the mutual funds that you are buying decrease. When they decrease, you get more bang for your buck. You put in $100 at $10 a share, you get, you know, 10 shares. If it's at $1 a share, you're getting 100 shares. When it then goes back up, you're making more money. So you should want the market to go down if you ask me.

But the mistake is you're going to get scared. You're not going to go in, you will have sold at the wrong time, you will have forced everything down. And then the people who already don't need the money come in and scoop it up for you.

KING: Or you can level off and stop investing while keeping your current investments...

ORMAN: You could...

KING: ... and then the safety hedge.

ORMAN: ... but I think that's a mistake. I think one of the best things you can do is decide on a monthly amount of money that you want to put in the market and do it every single month for the rest of your life. It's called dollar-cost averaging. Take your dollars and average the cost of the stocks or the mutual funds that you are buying over time. As they go up, you obviously buy less. But as they go down, you buy more. And no matter what happens, you win.

KING: We'll be back. And when we come back, we'll talk about tech stocks. What are they? We see commercials on television for something, something, something.com. How do they make money? What do they do? And why are people buying and selling them in droves. And we'll take your calls. Suze Orman is the guest.

Don't go away.

(COMMERCIAL BREAK)

KING: And as Suze Orman mentioned to me during the break -- we're going to go to your calls momentarily -- most people need that paycheck every week, right?

ORMAN: Absolutely.

KING: They need -- most people watching us now can't say, I can go without it.

ORMAN: And they're about one paycheck away from bankruptcy. God forbid they lost their job, they wouldn't have a clue what to do, so...

KING: So careful is the word.

ORMAN: Careful is the word, but also disciplined is the word. And hopeful that they can have more, they can be more, but they have to do it little by little -- and conservatively.

KING: Dot.com: Why are we buying dot.com?

ORMAN: Because we all want to keep up with the dots now. It used to be the Joneses, now we want to keep up with the dots.

KING: And the dot.coms are making money?

ORMAN: Actually...

KING: Because a lot of them aren't.

ORMAN: No, most of the dot.coms aren't. And I got news for you. This last week, this last Friday, took a lot of those dot.coms and took them to the whipping post, so to speak, in that...

KING: Why would you buy something that is not making money?

ORMAN: I wouldn't buy something...

KING: But why did a lot of people do that?

ORMAN: In the hopes that they could be a millionaire. I got to tell you, all these shows, you're either going to, you know, be a millionaire, you're going to marry a millionaire, you're going to gamble in the stock market and become a millionaire. This millionaire fad...

KING: Lottery.

ORMAN: Lottery -- has gotten us...

KING: Something for nothing.

ORMAN: ... to do something that doesn't make common sense. It does not make common sense to buy a company based on hope, based on losses, based on their inability to do anything. But we all thought everybody was going to be foolish and do that. You know, like -- it said -- we were watching before the show started about the railroads in the 19th century. That's exactly what happened to the railroads. After the Civil War, railroads started to expand. And the railroad companies started to build railroads in other people's territory in the hopes that they could be purchased. What happened was they overexpanded, and then they started to go belly up. And then what we had was a total devastation of six years on the market, truthfully, because the railroad companies back then employed more people than the United States Post Office.

KING: But it said if you held the railroad stock you made money.

ORMAN: You did...

KING: If you could hold it through.

ORMAN: ... if you could hold -- but if you held the right ones. If you held the wrong ones, you didn't make a thing.

KING: Let's start including some phone calls for Suze Orman. The book "The Courage To Be Rich," before that "The 9 Steps to Financial Freedom," both super best sellers.

Tuscaloosa, Alabama -- hello.

CALLER: Hello.

KING: Hi.

CALLER: What is your best overall strategy for a first-time investor? And I have another question, too. Do you think the tech sector has hit bottom?

ORMAN: Yes, I have to tell you, when you say the "tech sector," it's all kinds of sectors in there. Are you talking about the Internet sector, the telecom sector? What you should be looking for is, again, total diversification. If I were you, I would not put 100 percent of the money that I have right now designated towards the market into the market. I would not have more than 60 percent of the money that I want to see grow in the market. I might then have 20, 25 percent in bonds and about 15 percent in money market funds. But I would not be putting all this money into the stock market.

KING: And how would you enter the market? Through a mutual fund, through what?

ORMAN: It would depend on how much money you have. If you have smaller sums of money, then of course via a mutual fund. If you have larger sums of money, I'm an advocate of individual stocks. I would much rather control when...

KING: So you'd go through a financial adviser, too, right?

ORMAN: That's -- you could, but...

KING: Do they take small accounts?

ORMAN: They do take small accounts. However. I have to tell you, you are never powerful in life until you're powerful over your own money, how you think about it, feel about it and...

KING: But there are smart people.

ORMAN: ... how you invest it.

KING: I don't operate on myself. If that guy is a money market -- money investor and he knows what he's doing, why shouldn't I...

ORMAN: What makes you think he knows what he's doing? How do you know...

KING: They're paying him $2 million a year and he works at the beach.

ORMAN: Yes, but what he does -- there's a very big difference between an adviser, let's say a portfolio manager within a mutual fund that you never get to talk to -- all he does is he buys and sells stocks. You don't see what he does. And he's totally focused on. Now imagine, here you are a stockbroker. You have 500 clients. Friday happens, your phone is ringing off the hook. Everybody is freaking out. You yourself have lost all this money. Do you think you can make a rational decision when all the people next to you also are totally freaking out? Their phones are ringing. Are you a financial adviser or are you a salesperson? When you mix, in my opinion, commissions with advice, you have to be very, very careful.

KING: We'll be back with Suze Orman, lots more of your phone calls.

Don't go away.

(COMMERCIAL BREAK)

KING: We're back with calls for Suze Orman on LARRY KING LIVE.

New Bedford, Massachusetts -- hello.

CALLER: Hi. Would it be beneficial to take some profits from a stock portfolio to pay off a credit card debt?

ORMAN: I have to tell you, it depends on the interest of your credit card debt and how you feel about that debt. If you have profits right now in companies that are not solid, if your profits are long-term, meaning that you have owned them for longer than 12 months, I have to tell you I would probably tell you to sell and pay off debt.

I don't like credit card debt at all. Credit card debt in my opinion is bondage, and you will never have financial freedom if you have bondage.

KING: You're a contributing editor to Oprah's new magazine.

ORMAN: I am.

KING: You going to write every month?

ORMAN: I am.

KING: Yes?

ORMAN: Actually, it's every other month. And so...

KING: Oh, it comes out every other month?

ORMAN: Yes, in fact her party is tonight in New York welcoming it on to the street.

KING: OK -- 318 pages, I understand, the first...

ORMAN: I guess so. All I know is what I wrote.

KING: Are you in the first -- you're in the first issue, right?

ORMAN: Absolutely.

KING: You'll be in every issue, right?

ORMAN: Yes.

KING: OK, what about those who criticize you? And there are some...

ORMAN: Yes.

KING: ... on the money shows that criticize you as being touchy- feely or kind of a psychological adviser.

ORMAN: Yes, they tell me, Suze, what does feelings have to do with money? And with that I have to laugh a little bit. Because if you look at the stock market, if you look at what just happened, every show that you hear, that you see, talks about sentiment indicators, indicators based on emotions of the people.

What's making the markets go up and down? It's fear. Is it fear of interest rate hikes, inflation coming back, the stock market being overpriced? Emotions rule what we do with money. If it rules what we do with money on a massive level, it rules what we do with money, too, on an individual level. We just had a woman call up about credit card debt. Why does she have credit card debt? Why do most of us in this United States have a half -- $500 billion, a half a trillion dollars of credit card debt? Why? I have to tell you, I truly believe when you feel less-than you spend more than.

KING: Well said. Augusta, Georgia -- hello.

CALLER: Hi, Larry.

KING: Hi.

CALLER: Hi, Ms. Orman.

ORMAN: Hi.

CALLER: I'm 37. I would like to take more risk with individual stock. My husband's 42, he's self-employed. He's got a more conservative approach to things. We've got two young children. What do you feel is the best way to attain significant long-term gains?

ORMAN: Little by little. Now I have to tell you, you said you have two children. You also said your husband is self-employed. Does your husband have, as a self-employed person, a KEOGH account or a SEP-IRA that he can set up for himself to put larger sums of money away? Do you yourself have retirement accounts set up for yourself such as a Roth IRA? And have you set up educational funds for your children to start investing for them? Little by little, fortunes are made. And I'll just give you a very quick example. A hundred dollars a month in a good fund at the age of 25. You do it every single month until you're 65, you'd have about $1 million. You wait, however, until you're 35 -- just 10 years, no big deal, $100 a month, $1,200 a year, $12,000 over 10 years. Do you know if you start at 35 rather than 25 you'd have only $300,000 at the age of 65. Those 10 years of not contributing cost you $700,000.

KING: Altamonte Springs, Florida -- hello.

CALLER: Hello, Larry and Orman.

KING: Hi.

CALLER: My husband and I are retired and we're in our 70s. And what percentage of mutual funds and bonds should we have in our portfolio?

ORMAN: It will depend on your income needs. I know that a lot of financial advisers come out and here and they say, you're 70 years of age. Therefore, you should have 20 percent in the market, 80 percent in bonds and safe and sound. But what if you're a 70-year-old that has a lot of money, that has pensions and Social Security and income from rental property? And the truth is, you don't need the money that you have. Your income is covered by other things. Then you can do other things with the money.

So each of you needs to look at your individual situation and decide what is the risk that you can take. I can tell you this, whatever the amount of income that you need off of your investments, that amount of money should be safe and sound and you should not be risking it at all. The rest, you can do what you want with.

KING: We're going to take a break, come back with Suze Orman, the author of "The Nine Steps to Financial Freedom" and "The Courage To Be Rich" -- I'm going to ask her what she means by the title which seems contradictory.

Tomorrow night, Anthony Quinn. Wednesday night, Dan Rather. Thursday night, Al Gore.

We'll be right back.

(COMMERCIAL BREAK)

KING: We're back with Suze Orman. Before we take another call, what do you mean by "the courage to be rich"? It takes courage to be rich?

ORMAN: I have to tell you, it does take courage to be rich if you don't have money. Think about it. Do you know people who have credit card debt? They don't even open up the bills when they come. It takes courage to open up the bills, add up how much you owe, to decide if you're going to pay for it or not.

If you don't have money, it takes courage to face your money bravely and honestly. Nobody knows how much they have. They don't know how much they spend. They don't know where it's going.. They don't have the courage to look, because they don't want to see what they're going to find.

KING: When people watch the CNNfns, CNBCs, all these shows, I watch them sometimes. I know sometimes less at end than I knew at the beginning. All these people seem to be -- I think I could do one of these shows. The effect today appears to have inflated ideas and I have no idea where the capital will be going. However, it seems that the benchers -- I don't know what they're talking about.

ORMAN: Well, you know what I find fascinating -- because I watch them all the time. It's as if we're looking for somebody else to give us the answers about a market that there are no answers to, so that people on the shows say the same things. Oh, it doesn't matter who they are...

KING: Right, I could phone it in.

ORMAN: ... what firm they are. It's the same thing over and over. And we watch because we're saying, tell me, tell me. There's no answer.

KING: But there's one truism, is there not? Nobody knows what's going to happen tomorrow, nobody.

ORMAN: That's right. You know, in the stock markets, it has never been so true that one thing about the stock market is that the game will never change nor will human nature, and that the way that it works today is the way that it worked 20 years ago and the way that it worked 200 years ago. Nobody knew then, nobody knows now, and they're never going to know.

KING: Keams Canyon, Arizona. Hello.

CALLER: Hello. Hello, Larry and Suze.

KING: Hi.

CALLER: I'm a middle-aged man, and my wife is disabled. So we're a single-income family.

ORMAN: Yes.

CALLER: Yes, I would like to become self-employed. What is the best strategy for me to reinvest my 401(k)?

ORMAN: So what will happen at that time, if you decide to leave your place of employment to become self-employed? You will then be able to take your 401(k), if you want to, and do an IRA rollover at any discount brokerage firm or mutual fund company or any institution that will hold an account for you.

However, this is what you need to know. If you are 55 years of age or older, in the year that you leave employment, you can take any money out of your 401(k) without any penalties whatsoever. So if you left your money in the 401(k) where you used to work after you go to be self-employed, and if you happen to be 55 or older in that year, if you needed money you could take it from your 401(k) without that 10 percent penalty.

KING: There are times, then -- very often cash is bad?

ORMAN: Yes, sometimes they say so. I don't think so.

KING: Well, what if someone just kept it in the mattress? I'm not kidding.

ORMAN: Oh, in the...

KING: Put it in the mattress?

ORMAN: Well, then I'd tell you, it could be taken to the cleaners. Somebody breaks in.

KING: No, no, no.

ORMAN: You have a fire.

KING: Allowing that nothing happens.

ORMAN: That makes -- that makes...

KING: Everything you've ever earned you put in a mattress.

ORMAN: That makes absolutely no sense whatsoever. You can take money, put it in a hundred percent guaranteed safe investment called a Treasury note, guaranteed by the taxing authority...

KING: That then is cash? That's the mattress?

ORMAN: That's cash, yes! And you're making 6 percent. You're like -- would you -- when you walk down the street and you see a quarter, do you pick it up?

KING: Yes.

ORMAN: Of course you do.

KING: I put it in my shoe for luck.

ORMAN: There you go.

KING: Then it hurts my foot, and I'm at the podiatrist.

(CROSSTALK)

ORMAN: But you have money in the mattress. Let's say you have $10,000. It's like you leaving 600 dollar bills all over the ground ever single year for other people to pick up.

KING: Campton -- or Canton, Michigan, hello. CALLER: Hello?

KING: Hi.

CALLER: Hi. My question is I'm 35 years old, and I plan on investing $4,000 in a mutual fund, and I've saved nothing toward retirement so far. I was wondering should I invest -- I've already decided on the mutual fund I want to invest in, I think. It's an index fund, a no-load index fund.

ORMAN: Good, that's a fabulous thing to do.

CALLER: I got that from reading your book.

ORMAN: Thank you.

CALLER: And I was wondering, though, should I invest that in the mutual fund through the Roth IRA. I know I can only do 2,000 a year if I do it that way. I'd have to do 2,000 this year and 2,000 next year.

ORMAN: Well, actually, I would absolutely do that. And you know, it's still April 17th here. Today is the day taxes are due. You could, if you haven't done it already, open up a Roth IRA today, invest today that $2,000 for your Roth IRA for last year.

KING: It's closed, though. You can still open it.

ORMAN: You still can as of today, April 17th. Depends where she is.

KING: She's in Michigan.

ORMAN: Michigan. So you're getting close here if your brokerage firms are open. Sometimes they stay open just for you to be able to do this. But if not, you can at least do it for this year, the year 2000. Roth IRAs are fabulous vehicles for you to invest in.

KING: You want to explain now Social Security. You can now collect it between 65 and 70 no matter what you earn.

ORMAN: That's right, you can. And what many people need to know, though, however is that the Social Security laws have also changed. So depending on when you are born, you're not going to be able to collect Social Security, the full amount when you're 65. Many of us are going to have to wait until we're 67. If we collect at 62, we're only going to get 30 percent rather than 20 percent. So it's very important that we all...

KING: But there's no earnings...

ORMAN: There's no earnings anymore...

(CROSSTALK)

KING: ... now. You can't earn... ORMAN: That's right. Pretty good.

(CROSSTALK)

KING: ... independent children collect?

ORMAN: That's right. Don't you like that?

There's so many things about Social Security that we don't know. We don't know that if we've been married for somebody for at least 10 years and now we're divorced that we can collect Social Security benefits or we could collect his benefit even though it won't cost him a penny when we get to be 65 years of age.

So there's so many things about our Social Security system that gives us benefits that we don't know because we don't research it.

KING: Is it wise to definitely send your tax in tonight?

ORMAN: Well, yes.

KING: I mean, because -- no, you don't have to. If you're owed money, you don't have to send it in tonight.

ORMAN: Well, you don't...

KING: If they owe you money, you can send it in, in six months.

ORMAN: But I have to tell you, if they owe you money and you're not sending it in -- in fact, if they owe you money and you have sent it in January 1st, that is one of the most uncommon sense things I've ever heard of.

Why? They owe you money.

KING: I know, but this way you don't have to kill yourself.

ORMAN: Why?

KING: I'm just talking about procrastinating. No procrastinators think have to file tonight.

(CROSSTALK)

ORMAN: ... don't have anything to do money.

KING: But they don't have to file tonight...

ORMAN: They don't, no...

KING: ... if they're owed money.

ORMAN: If they're owed money, they don't have to. That's right.

KING: Just make that clear for somebody driving 89,000 miles an hour to the post office. ORMAN: Absolutely. However, for them, they are wasting money and they should have filed January 1st.

KING: Las Vegas, hello.

CALLER: Hi. I have a question. I have a thousand dollars to invest. And would it be smart to buy a particular stock that I like with that thousand dollars or diversify it into a mutual fund?

KING: If you like the stock, why not buy it?

ORMAN: Because if everything that you have is invested in just one stock and something happens to that one stock, there goes your money. I personally would recommend for a thousand dollars to open a Roth IRA and to buy a mutual fund with that money, so that money then can be diversified, such as in an index fund among thousands or maybe hundreds depending on which kind of index fund you buy so that you have diversification. Remember, diversification is the key to success.

KING: Do you ever recommend gold or silver?

ORMAN: No, never.

KING: You ever recommend commodities?

ORMAN: Never.

KING: Never?

ORMAN: Never.

KING: Somebody's making money.

ORMAN: Somebody's making money, and years ago I used to do that as a financial adviser. Now, little by little, slowly diversification, asset allocation -- it's the way to go.

KING: Back with more of Suze Orman. Her book is "The Courage to Be Rich," according to "Publishers Weekly," the No. 6 bestselling book in nonfiction in 1999. The year before that, she wrote "The Nine Steps to Financial Freedom." That was the No. 1 bestseller in nonfiction.

Anthony Quinn tomorrow night. Right back with more calls. Don't go away.

(COMMERCIAL BREAK)

KING: Shouldn't we be learning all this in high school?

ORMAN: I think we should be learning it in grammar school. I think we learn and develop our money attitudes at a very, very young age. I mean, if we could do a study right now and I had a room full of people, and I said to you, "What is the first thing that you can remember about money?" and most people would say, your mommy said to you, "Don't touch it, it's dirty."

Are we still not touching money today because it's dirty? Maybe. So I think we need to learn about it right away as soon as we understand it, which is quite young actually.

KING: Why do we worry if Alan Greenspan doesn't feel well today?

ORMAN: Because they've instilled that fear in us. If he continues to raise rates...

KING: He hasn't done it?

ORMAN: He hasn't done it. I have to tell you, I like Alan Greenspan. I think he's getting a bad wrap in that we were spending too much money. People had extraordinary wealth on paper, and they were overextending themselves. He's trying to slow that down. He's not trying necessarily to get the markets to go down. Obviously, he hasn't done a good job in that really. Look at them today. But he's trying to get us to be realistic on what we should be spending and what we shouldn't be spending.

KING: Ellensburg, Washington, hello.

CALLER: Hi, Suze. I'm invested in Microsoft and wanted to know how a rumored breakup might affect these stocks.

ORMAN: That's a good question. You know, do you remember a long, long time ago with AT&T. AT&T was one company, and then they had a breakup into many, many little different companies. And the truth is each and every one of those companies on the whole did far better than if you had just kept AT&T one company.

So I have to tell you, I think whatever happens with Microsoft will be just fine.

I'm sorry this is happening to Mr. Bill Gates. He's enabled a lot of people to make a lot of money through what he did, and I hope that they don't make him break up and I hope Microsoft is allowed to continue just how it is.

However, I think whether they break up or not, Microsoft is a good investment. Always has been and I think it always will be.

KING: You don't favor monopolies, though, do you?

ORMAN: No, I don't.

KING: A lot of people made money with Standard Oil.

ORMAN: That's right.

KING: But they had a right to be broken up.

ORMAN: That's right. But I just -- for some reason, I don't feel that way about Bill. I feel that he -- you know, he had the technology. He enabled a lot of people to access, and all of a sudden made this little thing called a computer an everyday occurrence.

KING: A lot of people made a lot of money.

ORMAN: A lot of people. A lot of people.

KING: You also have the question of who did he hurt. Did he cause people to lose money?

ORMAN: Now maybe he did, but that's, in my opinion, I have to tell you, that's capitalism and that's fair competition.

KING: Should all financial decisions be made by agreement in a family?

ORMAN: Absolutely.

KING: Of course, you can have differences here. One's risky, one's not.

ORMAN: That's right. But on joint money, on money that's truly both of yours, you have to have equal consent on it. Arguments over money is the No. 1 reason for divorce in the United States today. The divorce rate: One out of two couples who get married get divorced. So you have to have financial intimacy, I call it, where you know as much about each other's money habits and respect them and work as a team as you do every other part of your life.

KING: How liquid should an individual be?

ORMAN: As liquid as you need for at least six months of emergency money.

KING: So therefore, you should be able to have cash that you can live for six months if no one gave you a penny.

ORMAN: Nobody gave you a penny. You wouldn't even have to worry about it, because, you see, when you're afraid, you don't have that liquidity -- you just lost your job, you don't have that there -- you're fearful. When you're fearful, you go in and you say, I need a job, and your employer can sense that -- how fearful you are. That fear renders you powerless.

You think an employer is going to want to hire you when they feel that you're powerless? So you've repelled them away from you.

If you didn't have that need, you would walk in and say, I deserve this job, I'm good, and they'd probably hire you.

KING: Living longer going to create more problems?

ORMAN: Yes, it's going to create a lot of problems, I mean, even with Social Security. Do you know when they first created Social Security the average lifespan was 62? They never even thought we were going to live long enough to collect Social Security at 65: 89, 90, 95, we're still alive. It creates problems within the Social Security system. KING: You need money for longer.

ORMAN: That's right.

KING: OK. Now, the retirement age -- the retirement age isn't 65 anymore. People work to 65.

ORMAN: They're trying to adjust that. But it's interesting. I do think it's going to create problems the longer we live also. But it's interesting: It feeds the economy in a whole different way, because the longer we live -- also, it's a known fact, when we get older, once we're about 70, we take 17 prescription drugs a year.

So you have you 76 million baby boomers getting older. Might want to look at pharmaceuticals.

KING: Pharmaceuticals, how can they go bad?

ORMAN: Well, it depends. I mean, they go bad when all of a sudden they say they have a drug and the drug doesn't get accepted and doesn't get approved. Or remember years ago when Johnson & Johnson with a little -- had something go wrong because somebody took a Tylenol and things happened.

Things can go wrong with pharmaceuticals, but right now, you have fabulous companies. You have your Bristol-Myers...

KING: Would they be in trouble if a major disease were cured?

ORMAN: I'm happy to tell you I think they would. I think -- I think that sometimes we -- we profit...

KING: Perpetuating.

ORMAN: ... at others' expenses, I'm sorry to say.

KING: Just thought of that. We'll be back with more of Suze Orman on LARRY KING LIVE. Calls them as she sees them. Don't go away.

(COMMERCIAL BREAK)

KING: Dan Rather Wednesday. We go back to calls for Suze Orman.

Palm City, Florida, hello.

CALLER: Hi, how are you?

KING: How are you?

CALLER: Very timely show. I'm glad you're doing a show like this.

KING: Thank you. Me too.

CALLER: But I have a question for Suze. KING: Sure.

CALLER: It seems to me that I shouldn't have to buy your book or pay a commission. All I need to really do is invest in the S&P 500 stock index fund: 80 percent of professional financial money managers haven't beaten that, put my money in it and forget about it.

ORMAN: Honey, who's disagreeing with you? If you happened to read my book, "The Nine Steps to Financial Freedom," you would say I'm telling you exactly that.

KING: S&P means you're buying everything.

ORMAN: Yes, you're buying the Standard & Poor's 500 index.

However, I have to tell you, if you're going to buy an index fund, right now you might want to look into the Vanguard total stock index funds, which buys more than just the top 500 stocks. But I couldn't agree with you more, just so you know.

KING: But you should still buy her book because she talks about other things, right? Like houses.

ORMAN: The book's also at the library, so if you have credit card debt, you might want to take a true step toward financial freedom and go to the library and take it out. Information is information. You don't have to purchase it to get it.

KING: Victoria, British Columbia, hello.

CALLER: Hello, Suze and Larry.

KING: Hi.

CALLER: I think this is a pretty simple question. I'll get into more detail if you need it. Is it more advantageous for me to pay down my mortgage, thereby investing in myself, or to invest in mutual funds?

ORMAN: It will depend on what makes you feel more powerful. For many women out there, they get extreme power knowing that one day sooner than later they're going to own their home outright. I happen to be one of those women who -- I like knowing my house is my house, no matter what happens, nobody can take it from me.

So I don't think it has to be, however, an either/or situation.

Do you know if you have a 30-year mortgage and you just pay one extra mortgage payment a year, you will change a 30-year mortgage to 22 or a 15-year mortgage to 12. You could do that at the same time that you're invested in mutual funds.

Please don't look at your money as if you have -- this is all you can do. You can only do this, you can only do that. Do a little of it all. Diversify and pay down mortgage and diversify into a mutual fund as well. KING: Is the same true, you should buy a home that's about equivalent of if you have -- if you make $100,000 a year, you can buy a $400,000 home? Is that about right?

ORMAN: That's what they say.

KING: What they used to say. Is that still true?

ORMAN: What they say is still true. However, I have to tell you I'm not so sure I believe what they say.

KING: What is a good rule of thumb?

ORMAN: You figure out what you can afford truthfully after taxes. You do the calculations. What you can afford after taxes, after you want to live a nice lifestyle, after your vacations, after whatever it is that you want. How much money do you have left over to put toward real estate? Otherwise we become cash-poor and we start to hate the property that we bought.

KING: Is it ever intelligent to live in an apartment?

ORMAN: It absolutely is. There are some areas right now that are so overextended in real estate prices. So between the property taxes and the mortgage payments -- and most people don't have 20 percent to put down. And when they don't have 20 percent to put down, they're going to pay something called PMI, or private mortgage insurance. When it's all said and done, they totally have no money left to do anything. But yet, they can have a nice apartment that's at one-quarter. That's to live in an apartment. But save the money so that you can do it one day.

KING: If you can pay off your car, should you?

ORMAN: Absolutely. And you should not, in my opinion, in most cases, be leasing a car.

KING: Really?

ORMAN: Yes. It's, you know, it's -- a car. And what is this thing about having a car for three years and getting another one? If you have to finance a car, fine. But after you've financed it, keep it. There's nothing wrong with keeping a car for 10 years, 13 years if you take good care of it. And then take that money and invest it in your future, you'll get a lot further mileage out of that than you will your car.

KING: We'll be back with more moments with Suze Orman, the bestselling author of "The Courage to Be Rich." Don't go away.

This week on LARRY KING LIVE, tomorrow night legendary actor Anthony Quinn joins me to celebrate his 85th birthday. He'll be the guest for the hour and he'll take your calls. Then on Wednesday, one of the most distinguished journalists in broadcasting, CBS's Dan Rather is the guest. And Thursday night, Vice President Al Gore and his wife, Tipper. All ahead this week on LARRY KING LIVE. (COMMERCIAL BREAK)

KING: Suze is also in the new Oprah magazine, by the way, now on sale.

Trenton, Michigan, hello.

CALLER: Hello. In my divorce settlement, I was ordered to pay my husband a sum of $30,000 against my home equity. Should I refinance my home, or is there a better way to repay this debt?

ORMAN: No, I have to tell you refinancing your home, if you don't have any other sources for that money, would be the best solution, because in most cases it will be tax-deductible and that you'll still be able to, you know, pay it off over time, so the payments are not going to be that exorbitant for you.

Let's say if you had a 401(k) and you borrowed the money, you'd have to pay it back in five years, and if God forbid you lost the job, the money would be due (UNINTELLIGIBLE) back right away. And if you didn't have it, you'd have to pay taxes, about a 10 percent penalty tax.

Just refinance your home. Know that it's fine, your life goes on. It's what you have to pay to play. No big deal.

KING: Let's give some tips. What are some generally smart tips for people to do right now on this market down, market up a little today? Good ideas. Some good ideas.

ORMAN: First of all, look at your own life. Whether or not the markets are going up or down, how is your own financial life doing? Are you going up and down emotionally speaking? Because you have credit card debt. You don't have anything saved. Let's start where you are.

Get out of credit card debt. Set aside and get an emergency fund.

Make sure -- forget about the stock markets. Do you have a will? Do you have a trust? Do you have a durable power of attorney for health care? Do you have the documents in place today that will protect your tomorrows.

Once you've taken care of all that, then let's start looking at your money.

Then open up retirement accounts, start paying down your mortgage, make sure that you contribute the maximum to your 401(k) plan if you have one. If you're self-employed, set up a SEP IRA or a Keogh.

You don't know where to start, you don't know what to do. There are mutual funds out there that will accept as little as $25 a month. Index funds, as you heard some of the callers call in with, are fabulous places that offer diversification. You don't have to worry about it. Invest here but invest overseas as well. Don't have 100 percent of your money here in the United States. It wouldn't kill you to have 20 percent over in international index funds as well.

And so have diversification. Do it every single month. Do it for the long haul and don't look back.

KING: How many people do you think, percentage, have the former, taken care of the trust and the wills?

ORMAN: Hardly any. Whenever I give a seminar -- I don't care if there's 10,000 people in the room, 100 people in the room -- I ask one question: "How many of you do not have a living revokable trust?" which in my opinion almost everybody needs, and a will, almost 100 percent of the people raise their hands.

KING: Explain quickly what a -- we know what a will is. What's a living revokable trust?

ORMAN: A living revocable trust is living -- you do it while you're alive -- revokable -- you can change it -- trust -- it's the name of the document. You simply take the steps while you are alive to transfer the title of your property from your individual name into the name of a trust. Therefore, upon your death, it passes immediately to your beneficiaries. No probate. In most states, probates can be 4 or 5 percent of the fair market value of your assets. Not the net -- not the actual value, you know, worth of it. You have a house worth $200,000, even if you have a $190,000 mortgage, state of California here, the mandatory probate would be $10,300. If you have a will, you're going to go to probate.

KING: By the way, most people who scream about estate taxes, 600,000 is not taxed, right?

ORMAN: 675,000 this year going up to $1 million by the year 2006. But if you had a...

KING: How many...

ORMAN: ... tax (UNINTELLIGIBLE) trust, you could shelter up to 2 million by...

KING: How many people are going to leave an estate of 1 million?

ORMAN: Actually, quite a few, believe it or not. Millionaires are, you know, becoming more and more prevalent.

KING: Yes, but it still hurts...

ORMAN: However, you would have a trust for a different reason than to avoid taxes necessarily. You would also have one in case of an incapacity. Nobody thinks -- god forbid we slip, we bang our head. Who's can take care of us? A trust with an incapacity clause will save you a lot of trouble.

KING: Suze, you're a great guest. We'll call on you a lot.

ORMAN: Thank you.

KING: Suze Orman. The book is "The Courage to Be Rich," a major bestseller. A previous one, another one, "The Nine Steps to Financial Freedom." And both are available everywhere, paperback or hard cover.

Anthony Quinn tomorrow night, Dan Rather Wednesday, and the Al Gore and Tipper Gore family will be with us on Thursday night.

Stay tuned for CNN "NEWSSTAND" with an extraordinary story about an incredible triathalete.

Thanks for joining us. From Los Angeles, good night.

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